Over 17,000 Dar Al Arkan investors get compensated for trade violations

Logo of Dar Alarkan Real Estate Development Co.

The Capital Market Authority (CMA) announced compensating more than 17,000 investors affected by violations committed in trading of Dar Al Arkan Real Estate Development Co.’s shares.

These violations were committed by 17 violators who were penalized by a final sentence by the Appeal Committee for Resolution of Securities Disputes (ACRSD) on July 20, 2023, following the penal lawsuit filed by the Public Prosecution and referred to the CMA.

The ruling obligated these investors, along with five others, to pay SAR 1.196 billion as restitution for their illicit gains collected from these trading frauds.

According to the CMA statement, the compensation amounts were deposited into the accounts of the affected investors through the Compensation Fund, which was earlier established pursuant to a resolution by the CMA's board to compensate affected parties as per the Committee for Resolution of Securities Disputes (CRSD). This should facilitate the compensation process and ensure that entitlements are delivered to their beneficiaries with minimal burden on them.

The CMA explained that, since the publication of the ACRSD's decision, it has worked on assessing the possibility of applying Article (59) of the Capital Market Law, which grants the CMA to oversee the compensation process of investors affected by such violations.

This assessment also considered the feasibility of establishing dedicated more compensation funds, to be financed from the recovered illicit gains. The aforementioned Compensation Fund is the second fund of its kind to compensate investors affected by market violations, following the first fund announced in July for the case of Watani Iron Steel Co., whose distribution to investors was completed less than three months ago.

The distribution plan was structured to reflect the severity of the violations, the value of illegal gains realized, and the extent of losses suffered by investors who traded the company’s shares during the violation periods. Some investors received compensation exceeding SAR 1 million, as approved by the CRSD.

The CMA emphasized that the distribution plan covers all investors proven to have suffered harm based on technical records. Investors who believe they were harmed but were not included in the distribution plan can file individual claims with the CRSD after first submitting a complaint to the CMA.

According to data available with Argaam, in July 2023, the CRSD Secretariat announced the final decision of the CRSD in the public criminal case referred by the CMA for violations in the trade of Dar Al Arkan shares.

The ruling convicted 17 investors, fining them SAR 6 million, and mandated five others to pay SAR 1.19 billion for violating the Capital Market Law and Market Conduct Regulations when trading Dar Al Arkan shares.

The violations occurred between April 27, 2017, and Jan. 23, 2018, and between Feb. 18, 2018, and May 31, 2018. The conduct was deemed manipulative and fraudulent, involving placing buy and sell orders to influence the stock price and closing price.

Compensation funds complement other mechanisms for addressing investor losses in the capital market, alongside individual and collective lawsuits. The CMA applies a set of criteria to assess the appropriateness of establishing a compensation fund using illicit gains, particularly when harm against investors is attested.

The CMA concluded that a compensation fund is often more effective and practical than other methods. It employs analytical tools to systematically evaluate the suitability of such a fund, considering factors such as the method of execution and collection of illicit gains, the nature, multiplicity, and impact of violations, and the application of compensation principles by the relevant bodies.

The CMA also emphasized that, to enhance compensation opportunities, it studies global best practices in financial markets and adopts those compatible with the Saudi market. These efforts aim to improve compensation mechanisms, strengthen investor confidence and protect their rights, and contribute to building a more advanced, competitive, and fair financial system.